Can environmental regulation improve firm total factor productivity? The mediating effects of credit resource allocation

To effectively shift from economic growth based on high levels of energy expenditure and pollution and to actively address global climate change, the purpose of this paper is to explore whether environmental regulation in developing countries helps promote TFP from a credit resource allocation perspective. This paper examines the impact of environmental regulation on firm TFP and the underlying mechanism of TFP using data on Chinese listed A-share companies from 2011 to 2018. The relationship between ERS and enterprise TFP is found to exhibit a clear U shape, that is, it shows the characteristics of inhibition followed by promotion. The mechanism analysis indicates that credit allocation is a significant mediator between environmental regulation and its effect on firm TFP through such allocation, while the heterogeneity analysis shows that in the central and western regions and in highly competitive industries, environmental regulation significantly affects firm TFP through credit allocation. The empirical results, which indicate that ERS in China is still at the left-hand side of the U-shaped curve inhibition area, suggest that government regulation should be strengthened, differentiated regional environmental regulation should be implemented, the bank credit system should be improved, and the U-shaped inflection point must be crossed if high-quality economic development is to be achieved in China.